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MASB Islamic technical pronouncements

The MASB does not issue separate Islamic accounting standards. MASB approved accounting standards shall apply to Shariah compliant financial transactions and events, unless there is a Shariah prohibition. Any additional guidance on accounting for Islamic financial transactions and events will take the form of other pronouncements, usually Technical Releases, which supplement MASB approved accounting standards. MASB may also issue Discussion Papers for public comment in order to seek confirmation of the Board’s understanding of certain matters, as well as to solicit views on alternative solutions and tentative conclusions.

The following are Islamic technical pronouncements currently in issuance:

[Click on a title to view the document on-line. Alternatively, hardcopies of the documents can be purchased via by clicking on this link.]

Statement Of Principles i-1 (SOP i-1), Financial Reporting from an Islamic Perspective

SOP i-1 serves to inform that MASB approved accounting standards shall apply to Islamic financial transactions, unless there is a Shariah prohibition.

The appendices to SOP i-1 include a review by the Shariah Advisory Council (SAC) of Bank Negara Malaysia, which concluded, among others, that “generally accepted accounting principles or methods, as discussed in MASB’s proposal [i.e. SOP i-1], may be applied in financial reporting from an Islamic perspective as their application does not conflict with general Shariah principles or methodologies”.

Technical Release i-1 (TR i-1), Accounting for Zakat on Business

When an entity pays zakat on business, TR i-1 requires it to be recognised as an expense of the entity.  This is to differentiate between zakat paid by an entity in its own legal capacity, and zakat paid on behalf of its shareholders.

Technical Release i-2 (TR i-2), Ijarah - Withdrawn

Technical Release i-3 (TR i-3), Presentation of Financial Statements of Islamic Financial Institutions

FRS i-1 was withdrawn to eliminate duplication of requirements already contained in other MASB approved accounting standards.  The remaining guidance in FRS i-1 not found in other standards was transferred to TR i-3.  The guidance mainly concerns presentation of information relating to contracts used by Islamic financial institutions.

Technical Release i-4 (TR i-4), Shariah Compliant Sale Contracts

TR i-4 was issued to clarify the recognition and derecognition requirements for items acquired or transferred through a Shariah compliant sale contract.  Among others, TR i-4 requires an entity to consider whether the sale was part of a series of linked transactions in determining whether the subject of sale would be recognised or derecognised.

Discussion Paper i-1 (DP i-1) Takaful

DP i-1 discusses takaful accounting issues such as whether takaful falls within the scope of MFRS 4, the recognition and measurement of qard, consolidation, presentation of financial statements of takaful entities, retakaful, participating contracts, revenue recognition and the need for additional disclosures.

Discussion Paper i-2 (DP i-2) Sukuk

DP i-2 discusses sukuk accounting issues such as consolidation of any entities created through the sukuk issuance, derecognition of assets transferred through the sukuk issuance, classification and measurement of sukuk by the issuer and investor, fair value measurement, impairment, derivatives, guarantees and related party disclosures.

Discussion Paper i-3 (DP i-3) Shariah Compliant Profit-sharing Contracts

Shariah compliant profit-sharing contracts, or shirkah, are commonly used as underlying contracts in many Islamic finance products, including banking deposits, partnership agreements and joint asset arrangements.

DP i-3 Shariah Compliant Profit-sharing Contracts outlines the most often-cited accounting issues related to Shariah compliant profit-sharing contracts such as classification and measurement, smoothing techniques, and consolidation, joint ventures and investments in associates.

Feedback Statement on MASB Discussion Papers DP i-1 Takaful, DP i-2 Sukuk and DP i-3 Shariah Compliant Profit-sharing Contracts

The Feedback Statement is a summary of responses and comments received on Discussion Paper i-1 Takaful, Discussion Paperi-2 Sukuk and Discussion Paper i-3 Shariah Compliant Profit-sharing Contracts. It does not provide any Board decisions.

Research Paper, Waqf

This Research Paper on accounting for waqf is issued by the Malaysian Accounting Standards Board as part of its Islamic research.

If a waqf takes the form of an incorporated company, then its financial statements would likely be prepared or lodged under a law administered by the Securities Commission, the Central Bank or the Registrar of Companies. In accordance with the Financial Reporting Act 1997, such financial statements shall comply with MASB approved accounting standards. Hence, the MASB directed its staff to look into potential financial reporting issues relating to corporate waqf.

The Research Paper is intended to stimulate discussion on accounting for waqf. The recommendations contained therein do not prescribe accounting treatments for the issues identified.